UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission file number 0-9165
------
STRYKER CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1239739
- ------------------------------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4085, Kalamazoo, Michigan 49003-4085
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 385-2600
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
96,004,692 shares of Common Stock, $.10 par value, as of April 30, 1997.
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
March 31 December 31
1997 1996
-------- --------
(in thousands, except per share amounts)
ASSETS
CURRENTS ASSETS
<S> <C> <C>
Cash and cash equivalents $143,609 $175,673
Marketable debt securities 161,690 191,900
Accounts receivable, less allowance
of $9,600 (1996 - $9,500) 175,304 166,052
Inventories 126,439 127,387
Deferred income taxes 74,082 78,034
Prepaid expenses and other current assets 13,875 14,491
-------- --------
TOTAL CURRENT ASSETS 694,999 753,537
PROPERTY, PLANT AND EQUIPMENT, less
allowance for depreciation 167,654 172,303
OTHER ASSETS 69,135 67,666
-------- --------
$931,788 $993,506
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,707 $ 62,433
Accrued compensation 25,762 37,693
Income taxes 46,260 56,723
Accrued expenses and other liabilities 77,207 90,489
Current maturities of long-term debt 2,013 4,403
-------- --------
TOTAL CURRENT LIABILITIES 199,949 251,741
LONG-TERM DEBT, excluding current maturities 84,589 89,502
OTHER LIABILITIES 34,616 36,034
MINORITY INTEREST 77,959 85,868
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized-150,000 shares
Outstanding-96,075 shares (1996-96,787) 9,608 9,679
Additional paid-in capital 0 5,922
Retained earnings 530,290 514,318
Unrealized gains (losses) on securities (741) 1,196
Foreign translation adjustments (4,482) (754)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 534,675 530,361
-------- --------
$931,788 $993,506
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
1997 1996
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Net Sales $239,536 $217,623
Costs and expenses:
Cost of sales 97,685 89,336
Research, development and engineering 13,698 12,264
Selling, general and administrative 84,013 76,155
-------- --------
195,396 177,755
-------- --------
OPERATING INCOME 44,140 39,868
Other income 4,019 1,897
-------- --------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 48,159 41,765
Income taxes 17,820 15,870
-------- --------
EARNINGS BEFORE MINORITY INTEREST 30,339 25,895
Minority interest (319) (875)
-------- --------
NET EARNINGS $ 30,020 $ 25,020
======== ========
Net earnings per share of common stock $.31 $.26
==== ====
Average outstanding shares for
the period 96,863 97,146
See accompanying notes to condensed consolidated financial statements.
</TABLE>
In 1996 the Company declared a cash dividend of ten cents per share to
shareholders of record on December 31, 1996, payable on January 31, 1997. No
cash dividends have been declared during 1997.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
1997 1996
-------- --------
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 30,020 $ 25,020
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation 6,393 5,925
Amortization 3,345 1,038
Minority interest 319 875
Changes in operating assets and
liabilities, net of effects of
business acquisitions:
Accounts receivable (16,113) (3,913)
Inventories (5,880) (8,759)
Accounts payable (13,041) 1,874
Accrued expenses (15,517) (6,762)
Income taxes (12,231) 12,729
Other (239) (4,845)
-------- -----
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (22,944) 23,182
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (7,050) (7,803)
Sales (purchases) of marketable securities 30,210 (10,960)
Business acquisitions (4,999) (3,399)
Payments on borrowings (1,278) (359)
Dividends paid (9,679) (4,370)
Proceeds from exercise of stock options 3,255 2,259
Repurchases of common stock (23,296) (2,436)
Other 4,920 (1,267)
-------- --------
NET CASH USED IN INVESTING AND
FINANCING ACTIVITIES (7,917) (28,335)
Effect of exchange rate changes on cash
and cash equivalents (1,203) 31
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ($ 32,064) ($ 5,122)
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the results of
operations for the periods shown. The financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary for a fair presentation
of consolidated financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
2. INVENTORIES
Inventories are as follows (in thousands):
<TABLE>
March 31 December 31
1997 1996
--------- -----------
<S> <C> <C>
Finished goods $ 91,200 $ 94,424
Work-in-process 10,429 8,328
Raw material 32,164 31,989
--------- -----------
FIFO Cost 133,793 134,741
Less LIFO reserve 7,354 7,354
--------- -----------
$126,439 $127,387
========= ===========
</TABLE>
FIFO cost approximates replacement cost.
3. BUSINESS ACQUISITIONS
During the first quarter of 1997, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased certain physical therapy clinic operations at an
aggregate cost of $1.7 million. In addition, the Company purchased an
additional 1% of the outstanding common stock of Matsumoto Medical
Instruments, Inc. at a cost of $1.3 million, thereby increasing its direct
ownership interest in Matsumoto to 53%. The Company also purchased the
InfraVision product line, which is an infra-red detection technology used in
laparoscopic surgery, at a cost of $2.0 million. All of the above
acquisitions were accounted for by the purchase method. Any intangible
assets acquired in the above acquisitions are being amortized over periods
ranging from five to fifteen years. Pro forma consolidated operating results
including the acquisitions would not differ significantly from reported
results.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results Of Operations
- ---------------------
The table below sets forth domestic/international and product line sales
information:
<TABLE>
Three Months Ended
March 31
%
1996 1995 Change
-------- -------- ------
Domestic/International Sales
<S> <C> <C> <C>
Domestic $149,592 $133,687 12
International 89,944 83,936 7
-------- --------
Total Net Sales $239,536 $217,623 10
======== ========
Product Line Sales
Stryker Surgical $178,619 $161,475 11
Stryker Medical 51,337 43,562 18
Matsumoto Distributed
Products 9,580 12,586 (24)
-------- --------
Total Net Sales $239,536 $217,623 10
======== ========
</TABLE>
Stryker Corporation's net sales increased 10% in the first quarter of 1997
compared to the same period in 1996. Increased unit volume generated a 13%
sales increase. Net sales also increased 4% as a result of acquired
businesses. These increases were partially offset by a 5% decrease arising
from changes in foreign currency exchange rates, a 1% decline from a divested
business and a 1% decline in selling prices.
The Company's domestic sales increased 12% in the first quarter of 1997
compared to 1996. The domestic sales increase results from higher shipments
of orthopaedic implants, powered surgical instruments and endoscopic
equipment and increased revenue from physical therapy services and higher
shipments of hospital beds and stretchers. International sales increased 7%
in the first quarter of 1997 compared to the same period of 1996. The
increase in international sales is the result of strong shipments of Stryker
Surgical products, which more than offset unfavorable currency comparisons
which reduced the dollar value of the international sales increase by $9.8
million, or 12%, for the quarter.
Stryker Surgical product sales (principally orthopaedic products) increased
11%, led by increased shipments of orthopaedic implants, powered surgical
instruments and endoscopic equipment reduced by lower dollar translation of
foreign currency sales. Stryker Medical product sales (principally
stretchers/beds and physical therapy services) increased 18% in the first
quarter resulting from higher physical therapy revenues and increased
shipments of hospital beds and stretchers.
Sales of Matsumoto distributed products, which are sourced from other
companies for sale in Japan, declined 24% in the first quarter but were
comparable to fourth quarter 1996 levels. The decline resulted principally
from unfavorable foreign currency comparisons in Japan.
In January 1997, the Company sold its Sterilizer Service Division, which was
engaged in the sale, service and repair of sterilizers and related hospital
equipment. The Division reported sales of $9.6 million in 1996 as part of
the Stryker Medical Group. This transaction did not have a material impact
on the Company's operating results.
Cost of sales in the first quarter of 1997 represented 40.8% of sales
compared to 41.1% in the same period of 1996. Research, development and
engineering (R,D&E) expense increased 12% in the first quarter, and
represented 5.7% of sales in 1997 principally as a result of the continued
development of the OP-1 bone growth device at Stryker Biotech and the Company-
wide focus on new product development. The Company's commitment to product
development has resulted in several new products which were introduced at the
American Academy of Orthopaedic Surgeons in February 1997 including the
ScorpioT Knee system, TPST advanced micro-powered instruments, the Advanced
Cement Mixing System, the Model 882 3-Chip Camerar and the TempestT
Arthroscopy Pump. Selling, general and administrative (S,G&A) expenses
increased 10% in the first quarter of 1997 compared to the same period of
1996. The increase in S,G&A costs is principally a result of increased sales
expenses resulting from higher shipments. S,G&A costs increased to 35.1% of
sales in the first quarter of 1997 compared to 35.0% in the same period of
1996. Other income increased $2.1 million in the first quarter of 1997
compared to the first quarter of 1996 due to increased interest income
attributable to higher levels of invested cash and lower interest expense on
the Company's yen denominated debt.
The effective tax rate decreased to 37% in the first quarter of 1997 compared
to 38% in the first quarter of 1996 due to a decline in earnings reported by
Matsumoto, which are taxed at the higher Japanese tax rate. The earnings
decline at Matsumoto also led to a reduction in the minority interest charge
in the first quarter of 1997 as compared to the same period of 1996. In the
first quarter of 1997, earnings before income taxes and minority interest
increased 15% and net earnings increased 20% compared to the first quarter of
1996.
Liquidity and Capital Resources
- -------------------------------
Stryker's financial position at March 31, 1997 remained strong with cash and
marketable securities of $305.3 million and working capital of
$495.1 million. Accounts receivable at March 31, 1997 increased 6% from
December 31, 1996 as a result of increased sales and a 4-day increase in days
sales outstanding from a record low of 62 days at December 31, 1996 to 66
days at March 31, 1997. Inventories at March 31, 1997 decreased 1% from
December 31, 1996 and days in inventory increased to 123 days from 104 days
at December 31, 1996.
The Company used $22.9 million of cash from operations in the first quarter
of 1997, compared to $23.2 million of cash generated in the same period of
1996. The large use of cash in the first quarter is the result of paying
attorney fees and taxes totaling $37.9 million on the patent judgment
received in the fourth quarter of 1996. Excluding those payments, cash flow
from operations would be $7.9 million. During the first quarter of 1997, the
Company repurchased 904,000 shares of common stock in the open market at a
cost of $23.3 million. In April 1997 the Company repurchased an additional
88,800 shares of common stock at a cost of $2.3 million, bringing an end to
the April 24, 1996 repurchase authorization made by the Company's Board of
Directors authorizing the repurchase of 1,000,000 common shares. On April
30, 1997 the Company's Board of Directors approved a new stock repurchase
plan which authorizes the repurchase of 1,000,000 shares of common stock.
Shares repurchased under the share repurchase programs will be used for
employee stock option plans and other corporate purposes. Cash and
marketable securities of $305.3 million and anticipated future cash flows
from operations are expected to be sufficient to fund future operating and
capital requirements. The Company also has unsecured lines of credit with
banks totaling $52.4 million, none of which was utilized at March 31, 1997.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(c)At the Annual Meeting of Stockholders held on April 30, 1997, the
stockholders elected seven directors to serve until the next
Annual Meeting of Stockholders. The voting results for each
nominee were as follows:
<TABLE>
Shares
---------------------
Name For Withheld
------------------------- ---------- --------
<S> <C> <C>
John W. Brown 90,019,981 374,310
Howard E. Cox, Jr. 90,021,429 372,862
Donald M. Engelman, Ph.D. 90,013,954 380,337
Jerome H. Grossman, M.D. 90,015,469 378,822
John S. Lillard 89,984,963 409,328
William U. Parfet 89,962,346 431,945
Ronda E. Stryker 90,022,169 372,122
</TABLE>
The stockholders also approved at the Annual Meeting an amendment
to the 1988 Stock Option Plan to limit the number of shares of
common stock subject to stock options that may be granted in any
calendar year to 300,000 to any person. The voting results were
87,558,103 votes for, 561,395 votes against, and 1,067,194 votes
abstained, while 1,207,599 shares were withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits -- The exhibit listed below is submitted as a separate
section of this report following the signature page:
Exhibit 10(i) Material contracts: Amendment of 1988 Stock
Option Plan
Exhibit 11 Statement Re: Computation of Earnings per Share of
Common Stock
(b)Reports on Form 8-K -- No reports on Form 8-K were filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRYKER CORPORATION
-------------------------------
(Registrant)
May 7, 1997 JOHN W. BROWN
- ---------------------------- --------------------------------
Date John W. Brown, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
May 7, 1997 DAVID J. SIMPSON
- ---------------------------- --------------------------------
Date David J. Simpson, Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
Exhibit 10(i)
Amendment of
1988 Stock Option Plan
of
STRYKER CORPORATION
(effective April 30, 1997)
The first paragraph of Section 2 of the 1988 Stock Option Plan of Stryker
Corporation was amended, effective April 30, 1997, to read in its entirety as
follows:
2. Participants. The key employees and directors of the Company
and its subsidiaries to whom options may be granted under this Plan shall be
determined by the Board of Directors or the Stock Option Committee, if any
is appointed as provided in Section 10 hereof. Options may not be
granted to members of the Stock Option Committee during the period of their
service thereon. A grantee may hold more than one option. The number of
shares of Common Stock, par value $.10 per share (the "Common Stock"), of
the Company subject to stock options that may be granted under this Plan
in any calendar year to any key employee or director shall not exceed
300,000.
Exhibit 11
<TABLE>
Computation Of Earnings Per Share
Of Common Stock
Three Months Ended
March 31
1997 1996
----------- -----------
Average number of shares
<S> <C> <C>
outstanding 96,863,000 97,146,000
----------- -----------
Net earnings $30,020,000 $25,020,000
=========== ===========
Net earnings per share of
common stock $.31 $.26
==== ====
Primary:
Average shares outstanding 96,863,000 97,146,000
Net effect of dilutive stock
options, based on the
treasury stock method using
average market price 1,611,000 1,638,000
----------- -----------
Total Primary Shares 98,474,000 98,784,000
=========== ===========
Fully Diluted:
Average shares outstanding 96,863,000 97,146,000
Net effect of dilutive stock
options, using the period-
end market price, if higher
than average market price 1,611,000 1,638,000
----------- -----------
Total Fully Diluted Shares 98,474,000 98,784,000
=========== ===========
</TABLE>
Note: Shares subject to stock options are not included in the earnings per
share computation because the present effect thereof is not materially
dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 143609
<SECURITIES> 161690
<RECEIVABLES> 175304
<ALLOWANCES> 9600
<INVENTORY> 126439
<CURRENT-ASSETS> 694999
<PP&E> 167654
<DEPRECIATION> 120570
<TOTAL-ASSETS> 931788
<CURRENT-LIABILITIES> 199949
<BONDS> 0
0
0
<COMMON> 9608
<OTHER-SE> 525067
<TOTAL-LIABILITY-AND-EQUITY> 931788
<SALES> 239536
<TOTAL-REVENUES> 239536
<CGS> 97685
<TOTAL-COSTS> 195396
<OTHER-EXPENSES> (4019)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1233
<INCOME-PRETAX> 48159
<INCOME-TAX> 17820
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30020
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
